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Morristown TN Real Estate For Sale ~ Adjustable Rate Mortgages - The PROS & CONS!!!

By
Real Estate Agent with Elite Realty Group

Adjustable Rate Mortgages - The PROS & CONS

Now that you know what an ARM is and how it works, you may be wondering what the advantages and disadvantages are. So let’s explore that issue.

Offering adjustable rates allows lenders to transfer part of the interest rate risk from themselves to the borrower. If you get a fixed rate mortgage and the interest rate then goes up, it costs the lender money. However, if you have an adjustable rate mortgage, as the interest rate goes up, so does your payment, thus compensating the lender. Adjustable rate mortgages are particularly useful when unpredictable interest rates make fixed rate loans hard to get.

One of the main advantages of an adjustable rate mortgage is that the initial interest rate is lower than that of a fixed rate mortgage. A lower rate means lower payments, which may help you qualify for a larger loan. This is an important detail if you expect your future earnings to rise. In this case, the ARM will allow you to qualify for a larger loan amount earlier rather than later.

However, this information should only be used with care. If you use an ARM to qualify for a larger loan amount than a fixed rate would allow you and the interest rate then rises drastically or your income doesn’t rise, you may not be able to afford the larger monthly payments, thus causing you to default on your loan.

A situation in which an adjustable rate mortgage makes sense would be if you are only going to keep the house for a short period of time. If you are only planning to own your house for only a few years, the risk of the interest rate rising goes down. This means that you will get a better rate with an ARM, making it a good choice. However, if you plan on staying in your home for a long period of time, a fixed rate may be a better option.

The lesson here is to have a plan. Know what your goals are in purchasing a home and plan for all eventualities. Do your research when shopping for an ARM and consider the worst-case scenario.

 

The Elkins Home Selling Team with Elite Realty Group provides services with Morristown TN Real Estate For Sale and Morristown TN Homes For Sale to home buyers and home sellers in Morristown Tennessee, Whitesburg, Talbott, Russellville, Sevierville, Bean Station, Dandridge, Pigeon Forgeand surrounding communities.

We specialize in working with Home Sellers in getting their homes listed and sold. We utilize the latest and most up to date marketing materials in assuring the job gets done quickly and with the least amount of hassle. Our homes are listed on over 32 different Real Estate web sites including realtor.com, yahoo.com, trulia.com and many others. Each office independently owned and operated.

Elite Realty Group is a full service real estate company serving Morristown TN Real Estate For Sale, Jefferson City TN Real Estate For Sale, Talbott TN Real Estate For Sale, Russellville TN Real Estate For Sale, Grainger Co TN Real Estate For Sale, Dandridge TN Homes For Sale, Cherokee Lake TN Homes For Sale and Douglas Lake TN Homes For Sale.

Comments (2)

Kristin Johnston - REALTOR®
RE/MAX Platinum - Waukesha, WI
Giving Back With Each Home Sold!

Thanks for sharing this information....have a wonderful Wednesday!

Jan 31, 2018 06:36 AM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Norma, I think the public would benefit by your explanation, and there are definitely pros and cons for each borrower.

Feb 01, 2018 06:27 AM